Wednesday, March 31, 2010

Some Sensible Ideas for NYC OTB

The New York City Off-Track Betting Corp. (NYC OTB), the only bookmaker in recorded history to consistently lose money, is in bankruptcy. Its chairman, Sandy Frucher, has proposed making it solvent through the simple remedy of not bothering to pay the racetracks and the horsemen anything. Unless of course, NYC OTB miraculously turns a profit, in which case the folks who put on the show would get some fraction of that profit.

As we all know, it's easy for creative accounting to either manufacture or disguise a profit, so it's hard to imagine that NYC OTB would have much incentive to be profitable. After all, as NYC OTB is a state-owned corporation, any profit wouldn't stay in the pockets of Frucher and the myriad other managers anyway.

Thanks to my Castle Village Farm partner Peggy Rees Smith, though, for pointing out that there are some good ideas out there for cleaning up the OTB mess, even if New York politicians aren't willing to do the obvious and just close it down and let NYRA take over its phone and internet operations. In particular, Peggy spotted this letter, from NY Assembly racing and wagering committee chair Gary Pretlow, to Assembly Speaker Shelley Silver, outlining a variety of measures NYC OTB could take almost immediately to cut costs and return to profitability.

Here, in his own words, are Pretlow's recommendations:

  • NYCOTB management is bloated, expending over $12 million per year in payroll. I recommend reducing the annual administrative payroll to $1,300,000, inclusive of fringe benefits, thus resulting in net savings of $8,300,000 in salaries and $1,700,000 in fringe benefits.

  • Since NYCOTB is no longer the property of New York City, it is my recommendation that the 2% surcharge which currently is paid to New York City be retained by the state. This change will generate an additional $10-$15 million in revenue.

  • The lease at 1501 Broadway currently serving as headquarters for New York City OTB must be abandoned, to result in a net savings of $2.5 million in rental payments. The Manhattan office currently houses the telephone operations, which should be moved to Aqueduct Racetrack along with the scaled-down management team.

  • NYCOTB should discontinue its television production to yield a net savings of $2 million. I've spoken with Capital OTB management and they are willing and capable of sending the signal they produce to the city to be shown on channel 71, at virtually no cost.

  • The city of New York has over 40,000 police officers who do a capable job of patrolling the entire city. I would urge that we eliminate the security forces employed by OTB, with the exception of those necessary for transferring of money. Allowing the city police to do their job would result in a net savings of $2 million.

  • NYCOTB currently operates 54 branches. It is my recommendation that the three branches on Staten Island be consolidated into one, which would result in the saving of over $1 million. I am also advocating the closure of at least five unprofitable OTB branch locations, including 991 2nd Avenue, which alone loses over $1 million per year and is attached to another OTB with a restaurant. These closings would generate an additional $5 million in savings.

  • Overtime at NYCOTB has run rampant. In an effort to save on overtime payments it is my recommendation is to work with the unions to achieve work rule changes. Currently individuals receive double time on Sundays if they work a Saturday. My recommendation is to eliminate Saturday-Sunday work assignments and reduce the number of part-timers. I would recommend that branch OTB clerks' work schedules consist of 3 successive 12 hour days, being Sunday- Monday-Tuesday or, Thursday-Friday-Saturday. Wednesday should be staffed by part-timers or per diem workers. The same should hold true for managers at the OTB parlors. This change would save $3 million in OTB clerk's payroll and $2 million for OTB management's payroll, for total saving of $5 million in overtime.

  • Also recommended is that the State Office of General Services examine all leases with the intention of renegotiation. If a landlord is uncooperative, NYS should consider closing that location. I estimate a savings of at least another $1 million from renegotiated leases.

  • NYCOTB currently operates a 50,000 square foot warehouse in Queens. Not seeing much need for this warehouse, my recommendation is to close the warehouse and retain five employees which should be assigned to the Aqueduct location. This would generate a $3 million savings.

  • NYCOTB currently employs approximately 15 individuals per branch, an extremely rich staffing pattern. With the work rule changes I am urging, the numbers can be limited to no more than nine OTB employees per location on average, in order to save several million dollars.

  • NYCOTB should reduce the usage of out-of-state tracks by at least 50% and show more in-state races. This will mitigate the eliminated payment for hold harmless and generate a net savings of $7 million. New York City OTB currently spends $37 million on simulcasting. Given its financial distress and continued impending closure, the contracts OTB has for receiving telecasts ought to be considered eligible to be renegotiated to generate a saving of approximately $3 million more.

  • NYCOTB currently has 80 vehicles. It is my recommendation that at least 60 of them be immediately sold at an average of $15,000 per vehicle. This and the annual cost of up keep savings of $6,700 would generate a $1 million cash infusion from the sale and a $400,000 annual savings on maintenance and insurance.

  • Payroll should be handled by the state comptroller's office or outsourced, creating additional savings of $1 million.

    The common sense in these proposals is obvious. Even a fraction of them would be sufficient to allow NYC OTB to be profitable. Beyond that, Pretlow also suggests that there be a statewide tote company, collectively owned by the six OTBs, and that there be statewide TV coverage of racing, rather than a different show for each of the six OTBs. And, while he suggests that the amounts that OTB currently owes to NYRA and other tracks be repaid, he does suggest stretching out the repayment over, in NYRA's case, 10 years. I'd love to see that money (some $15 million for NYRA) in the purse account now, but 10 years is better than never.

    Probably all far too sensible for Pretlow's ideas to be put into practice, but one can only hope.

    Oh, and by the way, Albany, we're still waiting for those slots at Aqueduct, in case you've forgotten.


malcer said...

Reasonable suggestions concerning NY's OTB mess - who knew?

Some of them aren't exactly my taste (screwing the employees or landlord - why, it's not their fault the company stinks) and a few probably need further examination (selling company assets like cars or warehouses often turns into a Pyrrhic victory when it turns out that outsourcing these functions is actually costlier in the long run), but many of these recommendations should be done ASAP.

secret said...

Another article posted by a moron who doesn't know what he's talking about. These are the facts, NYCOTB makes money, lots of it, it always has! On approximately a billion dollars in handle it earns roughly 125 million in gross profit. Unfortunately, due to ridiculous statutory mandates, all of that money is taken from OTB! Where does it go? Over 50 million sent to a bankrupt and corrupt NYRA. Millions more to the billionaire Rooney family who own Yonkers Raceway. Yes, and there's more, while police and fire are laid off, libraries are closed, childrens services cut, OTB money (TAX PAYER MONEY!) subsidizes horse breeders so they can live on their 200 acre farms in idyllic upstate. The truth is, NYCOTB is the only entity in the entire racing industry that could survive on it's own if it weren't strangled out of existence by political ignorance and the greed of all the racing industry leeches!

Steve Zorn said...

I normally would have rejected this last comment, just because I reject almost all that are merely ad hominem and hostile; I', not a fan of hiding behind aliases on the internet in order to indulge one's aggressive nature. But "secret" so spectacularly misses the point that he really does deserve an answer.

General Motors would make a very nice profit f it didn't have to pay for parts and raw materials. Lehman Brothers would have been profitable if it didn't have to pay interest on the money it borrowed to make its very bad bets in the financial markets. In other words, any company can make a profit if it doesn't pay for its necessary inputs. And for NYC OTB, those inputs are the races. To expect NYRA and other tracks to supply races to OTB for free is just like expecting a steel company to give General Motors sheet steel for free and say pay us a percentage of whatever profit you might make, or for a bank to lend money and say, don't pay us any interest unless you're profitable. Ain't gonna happen in other industries and shouldn't happen in racing.

Some Vegas race books actually pay more to the tracks than NYC OTB does, and still manage to stay in business. Does "secret" think we should give the signal away to them too?

jk said...

Great post and a great find of the letter by your CV partner. It is amazing someone had to find a needle in the haystack to get the numbers on how poorly run NYCOTB is. We all knew it was bad but the numbers help. The bankruptcy court can not ignore this.

Maybe we will get to see the rest of the OTB's numbers some day. The pols who were screaming over the NYRA Chairman's salary are silent about this mess.